Broadband is the future as TV faces rising costs and online video competition.

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The cable TV business is in trouble—in fact, it is "failing" as a business due to rising programming costs and consumers switching from traditional TV subscriptions to online video streaming, according to a cable lobbyist group.

"As a business, it is failing," said Matthew Polka, CEO of the American Cable Association (ACA). "It is very, very difficult for a cable operator in many cases to even break even on the cable side of the business, which is why broadband is so important, giving consumers more of a choice that we can't give them on cable [TV]."

Polka made his comments in an episode of C-SPAN Communicators that is airing this week, though it was recorded in April. Video is available here.

The ACA represents about 750 small and mid-sized cable operators who serve about seven million customers throughout the US. The ACA has also been one of the primary groups fighting broadband regulations, such as net neutrality and online privacy rules, and a now-dead set-top box proposal that would have helped cable TV subscribers watch the channels they subscribe to without a rented set-top box.

Cable “isn’t what it used to be”

"The cable business isn't what it used to be because of the high costs," Polka said, pointing to the amount cable TV companies pay programmers for sports, broadcast programming via retransmission consent fees, and other programming.

When asked about cord cutting, Polka said, "it's the video issue of our time as consumers learn they have choice" from services like Netflix, Hulu, and Amazon Prime.

"It gives consumers more choice, something that they've wanted for a long time, more control from the bundle of cable linear programming," Polka said. "Our members, however, I think are very aggressive in how they are trying to provide consumers that they serve with more choice through on-demand [channels], through availability of over-the-top services, making sure that their broadband plan is fast enough to support a consumer's video habits. So, yes, it's a thing that's happening today, cord cutting, cord shaving. But as an industry, our members are well primed to be able to serve their customers with their broadband service that allows them to consume the video they want."

Video is “certainly our worst product”

That's one reason cable companies in the ACA see broadband as "their future," Polka said.

A cable company executive who appeared alongside Polka on the C-SPAN show echoed those comments.

Video is "certainly our worst product," said Tom Larsen, senior VP of government and public relations for cable company Mediacom. "It makes the least amount of money."

Larsen is also an ACA board member. Mediacom is the US' fifth biggest cable company, though its 832,000 video subscribers are a fraction of Comcast's 22.5 million. "We used to be the eighth biggest [cable company in the US], but because of all these mergers and acquisitions we keep moving up without doing anything," Larsen said.

The pay-TV market lost about 410,000 subscribers in Q1 2017, "the first time that the industry has ever had net subscriber losses in the first quarter of a year," Leichtman Research Group reported last month. The top pay-TV companies across the cable, satellite, and telco industries still account for 93.3 million video subscribers.

While broadband subscriptions are growing, video customers are leaving because of rising prices and online video competition, Larsen said. But historically, video has "always been a big revenue driver for us" and has "paid in a lot of ways for the network that is able today to deliver broadband. So we're not ready to abandon it yet."

Pay-TV and Internet service providers rank last among 43 industries tracked by the American Customer Satisfaction Index (ACSI), suggesting widespread consumer dissatisfaction.

Even the biggest cable companies complain about programming costs. But Polka said it's "very fair" to say that, because of economies of scale, Comcast and Charter can deliver programming more cheaply than the small cable companies in the ACA. (Comcast also owns much of the programming it delivers over its cable TV system, such as NBC and various regional sports networks, and it charges other cable operators for the right to air that programming.)

TV blackouts

The ACA has complained repeatedly about broadcasters demanding higher retransmission consent fees from small cable companies than from big ones. TV channels are often blacked out when cable companies refuse to pay the broadcasters' price (even though they're available for free with an antenna). Last year, the Federal Communications Commission decided not to step up its oversight of contract disputes that sometimes take these channels off cable systems.

"What happens in the video marketplace is the big [cable companies] get the best prices and the programmers look to the littlest guys to make up the difference, so our price will disproportionately get higher," Larsen said. "So the markets we serve, which are traditionally small, rural markets, will pay more than an urban market. It's kind of a different digital divide. It's a pricing divide."

In negotiations, broadcasters "pretty much have the leverage because they can simply black out their stations," Larsen said.

Larsen and Polka both praised the FCC's new Republican leadership for taking a deregulatory approach to broadband. But Larsen said he doesn't expect the FCC to take any major action on TV blackouts. "I think, short of some major marketplace event, I don't see the new chairman doing anything about that issue," Larsen said.

The National Association of Broadcasters argues that cable companies "are simply attempting to avoid fairly compensating broadcasters, who produce the highest-rated content on television." The association says the government shouldn't intervene in contract disputes.